3 Tips Savvy Investors Use to Manage Insurance

Couple Managing Insurance Plans

Let’s face it, even with the new tax laws in place, insurance policies are the most tax efficient ways to generate wealth and transfer it to the next generation. Savvy advisors and investors know that well-managed assets should include a strategic use of life insurance, along with other investment vehicles.

 An Investor’s Secret Weapon

Just to make sure we’re all on the same page, let’s talk about why life insurance is still one of the most important investment tools for affluent individuals:

  • Cash value assets within life insurance policies can grow on a tax-deferred basis, allowing wealth to compound more quickly.
  • The death benefit can be transferred to your beneficiaries without being hit with the 40% estate tax (now applied to any amount over $22.4 million for married couples).
  • Beneficiaries are established, protecting your loved ones from expensive and protracted probate cases (in which the estate is determined by the government) wasting time and the precious assets you accumulated for their benefit.
  • You can access the death benefit yourself, in the event that you should need long-term end-of-life care, ensuring your quality of life. Beneficiaries will still receive the remaining cash value.
  • You can take out loans from your life insurance policy tax-free at a low cost, and in some cases you don’t have to pay it back (to yourself).

 Set It, but Don’t Forget It

People often open a life insurance policy, and forget to ensure that it is still meeting their needs. Life circumstances may have changed. For example:

  • You have remarried, and your beneficiary is still your ex-wife (now that’s awkward!).
  • Over time, insurance policies have become more sophisticated and more flexible. Your old policy may provide less coverage, at a higher price than in today’s market.
  • You find that the coverage is on the verge of a lapse, but you are not.
  • As the seasons of your life shift, you may find that you want to incorporate life insurance as a larger percentage of your assets.
  • Your investments are not performing as expected.

 Let’s Get Proactive

Here are 3 of the ways you can maximize the benefits you can gain from your life insurance policies:

  1. Perform an annual review

Only you can prevent forest fires (when it comes to your insurance policies). Sounds boring, but do yourself (and your loved ones) a favor and put out the fires before they start. If you are doing it for a client, they will thank you later.

A good annual review will include a review of key factors that affect the policy. Start with taking a look at the premiums, making sure you are current on your payments, and comparing them with other policies. You may find that you are overpaying (or underpaying as the case may be). Check who your beneficiaries are and make changes as needed. Review the total death benefit to determine if this is still meeting your needs. Take a look at the earnings rate of the policy – is it performing as you expected? Take a snapshot of the financial strength of the company, and how it stacks up against the competition. Comdex provides an at-a-glance rating system that compiles individual 3rd party evaluations of the insurance company, generating an overall score for each company that can be used to provide an apples-to-apples comparison. If your insurance company has declined in ratings, it may be a good idea for you to start shopping.

  1. Set up automatic reminders for important action

Automated systems are available to help you manage your insurance coverage. If you could receive an alert before a lapse, or when your premiums are due, you could ensure that your insurance is truly covering you. Get reminders for when to send out your annual Crummey Trust gift notifications, gifts or other events. Receive an alert when your insurance company has declined in ratings, or when your earnings rate has taken a dip.

  1. Keep your policy information in one place

Ideally, you should be able to link directly to your personal policy information through what the insurance company has stored electronically within their system. This means that you are not managing a bunch of paper, but information is displayed in a dashboard with key factors summarized, and easy access to details as needed. If you have multiple policies, managing them all in one place enables you to compare them, and identify issues before they arise.

 

Our team at Axia Global has identified certain tools that help ensure affluent clients and/or their advisors proactively manage their insurance coverage. Contact us to find out how these tools and services can make a measurable difference in your financial life.

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